Share prices of Biocon Ltd see-sawed after its September quarter results were announced, touching a 52-week high of Rs285 in intraday trading before settling at Rs272, flat compared with the previous session. This is puzzling, as sales grew by an impressive 31% to Rs580 crore year-on-year. Operating profit margin (excluding forex fluctuations) was marginally lower, falling by 0.6 percentage points to 18.6%. While a better product mix contributed to higher sales growth, material costs have also risen, leading to the drop in profit margin. Besides, research and development expenses also rose sharply as various research and development projects progressed to the next stage.
While the core biopharmaceutical business did well, licensing fees from its alliance with Mylan Inc. also contributed to growth. Contract research revenues rose by 38%, partly due to an increase in work being done for Bristol-Myers Squibb Co.
Biocon is evidently on a steady track. But whether it makes it to the big league will depend on success in research in the next year or two. While its current performance is, no doubt, good, investors are perhaps now eyeing the big pay-offs.
The company trades at around 19 times annualized earnings for the first-half period, which reflects investors’ expectation that growth rates would continue to be high.
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